Wednesday, November 15, 2006

Amazing market, isn't it? Nothing but strength. What's salient about this graph is that it's an image of the $NDX, and the rightmost price bar is the peak in March of 2000. As you can see, there's hardly any warning about what's going to happen. But this is what a market looks like before it collapses.

What can you draw from this? Probably not much. Obviously rises proceed collapses. And just because a market goes up a lot doesn't mean it's going to go down a lot. What I find somewhat chilling about this graph is how little warning anyone was given, even with the Dow selling off the last two months of this graph. Food for thought.

One of my favorite charts is the long-term view of the $SPX. I've marked up this chart with lines galore, but you get the idea. As you can see, we remain at the tippy-tippy-top of the ascending channel.

A closer view shows more clearly this top (oh, and for those that don't know, just click on any image to see a much bigger chart). Also remarkable is the trendline I've drawn on the RSI which has been cleanly broken.

The Dow Utilities, which go largely ignored in most commentaries, has been a non-participant in the recent rally. Worth noting.

I mentioned GOOG yesterday as a very attractive chart. It is, but just like SHLD, it hasn't really exploded off its pattern yet. I find it interesting today that the "$500 for the sake of $500" crowd couldn't manage to push the stock above this lofty level, and the chart was left in a shooting star pattern for the day.

For the moment, I'm glad I turned the comments section back on to anonymous posters. It's rocking and rolling again. We'll see if people keep the discourse civil this time.

Mr Kinght must be another anti american liberal - we have a strong economy, strong country, and the best place to live - stop hoping for bad things on this great country. I bet ur a big fan of Nancy Pelosi

Market is up due to liquity injections from the fed. They do not want to the economy go in the tank due to the housing bust. Its the only thing that can explain this straight up market. Just like 1999 all over again.

The VIX has only been lower two previous times in it's history. The time for a major pull back or fib retracement could be near. Almost everyone (Traders) I've spoken with have turned bullish. That's scary. It's OK to go long. There is money to be made.....long and short. But the thing that some uninformed people don't realize is that markets in this extreme over-extended overbought level are not healthy.

Tim....thanks for all the posts and the blog. There are times that you just can't pick a top. I know...I've tried to pick 7 or 8 in just the last couple of months. I've missed this whole bull run. But what is interesting is that so many charts are still far away from their highs in May before the big drop. To get in on the bull run you had to be selective in your picks.

The markets have got to come down. And for them to come down would be healthy. It's not wishing anything bad on the country or economy. It's just applying some sense to something that has not shown any sense.....since about mid August.So for everyone who thinks being a BEAR is bad...It actually is good to have Bears in the market. Think of the market as yourself. Breathe in and just keep trying to breathe in. You can't do it. At some point you have to exhale. So it is with the market. It goes up and it goes down. How else would you be able to buy and sell. There are buyers and there are sellers.

Tim and everyone else....I'm sorry if this post offends anyone. It just seems that traders that lean to the bearish side get the short (no pun intended) end of the stick. Hopefully it is well received.

i agree with 2:58pm, I think that since the housing market is sinking the only way to keep this economy from tanking is to move the markets higher so people actually have a place to make a minimum of 5-10% a year.

Remember when we were dropping hard and many were calling for the markets to drop below 10k. It seems like the same thing on the bullish side with many calling for 13,000 and even 14,000 by early 2007. I feel like going long myself but feel if i do I will regret it because thats when the markets will start dropping.

Im a huge fan and your blog has helped me a lot..but I think you're reaching a little.

I apologize ahead of time if we're not supposed to criticize your findings but I just felt that I needed to give a bit of an opposing perspective.

The example chart of $ reflects a 75% gain in 5.5 months and an amazingly steep climb. You've said yourself that this current rally is much more subdued.

The example of the S& P channel is also deceiving.

Yes we are at the top of a 2 year channel BUT it was only a couple months ago that the current channel didnt exist as the S& P hadnt hit its new high which just created this channel. In my eyes this channel hasnt been tested enough for us to worry ..yet.

The channel that realy seemed to matter was the one we just broke through which hit the 78.6% fib line at 1384 ..thats also where the S&P stalled for a bit.

We are also just a stones throw from being in yet a different channel which actually connects all the way back to Oct 2001... IMHO this is the channel to watch out for..and if Im throwing darts at the board I would say 1500 is going to be the precipice for our waterfall.

As a side note..does anyone here day trade the percentage gainers of the day? Its been really working for me for the past 2 months.

I got in NBIX towards the end of the day..all signs are showing a strong opening as it fills the gap down it made a few weeks ago. I dont expect it to last through the day though..Im just looking for 2 or 3% then Im out.

I see turning 'anonymous' back on has brought the riff raff back !..lol

LLL and COH were awesome plays today with more to follow tomorrow. As I said yesterday, why fight it? Go with the flow it pays everytime! Yes I know that this will come to an end but then we will just change direction.

Thanks Tim for some insightful charts today to remind us where we came from in the NOT so distant past....

First off, Tim, thanks for turning the anonymous poster feature back on. I definitely didn't want to start signing up with Google just to post here.

Now, as to the markets, I said it before and I'll say it one more time:

The Big Boys have NOPLACE ELSE to put their money right now! Bonds? Nope. Real estate? Yeah right. Commodities? Many of the big players don't trade commodities. Fixed income? No way, as long as they can float equity markets with false liquidity.

So that just leaves stocks. And if they keep pumping money in, which way do you think the markets will keep going?

I don't see any end in sight. No bear market will happen until they drain that liquidity back out of the system, which could very well be NEVER.

This is pathetic.

Granted, investors can always go foreign with their money, and quite frankly I'm not sure why they don't. But since this entire rise in the market has been manufactured and manipulated in its size and intensity, I wouldn't be surprised if the "Powers That Be" have put restrictions on where the freshly-printed monies can be invested (i.e., they must be invested domestically).

Do some of you folks on this site comprehend what you have missed over the last 6 months ?1400 pts on the DOW and 20 to 50 % on any number of stocks,i.e.-WYNN,MSFT,GM ,etc. Any of us can be wrong for a while, but that requires accepting that fact and changing strategies well before being stubborn for six months or more.There is a certain point where you don't get to be right no matter what happens.Hoping,Wishing ,hating momentum that does'nt make sense to you and staying in denial(possibly for years)have never been winning strategies in the stock market.

I love people who are stock markets winners in retrospect. Like anon 3:43. We are happy for you.

A couple of points: According to Jason at SentimentTrader.com the Investor's Intelligence survey reports only 22% of their sample is expecting a market decline. This is an extreme reading of bullishness. That towell Tim threw in earlier this week is now part of a very big pile.

The candle formed by today's S&P500 action has a pretty good sized wick on top. Plain language...it couldn't hold the surge up.

Speculative markets tend to end with the worst stocks doing the best at the very end, due to people looking for something to buy that hasn't gone up yet.

I submit the home builder sector for your inspection. There isn't a sector in worse shape as far as prospects, profits and sales. It is the best performer this week. They just can't go up fast enough...and on no good news.

The media is trying to spin the story that the house market is bottoming. NOT A CHANCE.

and, lol, Tim, you haven't had the anon posting on for more than a day and already someone is accusing you of [gasp]...being a LIBERAL!

"Do some of you folks on this site comprehend what you have missed over the last 6 months ?1400 pts on the DOW and 20 to 50 % on any number of stocks,i.e.-WYNN,MSFT,GM ,etc."

Thanks for the heads up. Where were you two months ago? Yes I missed out on the majority of the move.... should I be asking where were you when the market was falling???? No.

If everyone went long, then the market wouldn't be a market. and to say jump in right now after that run....no thanks.

I bought puts on ESRX at the close for a quick trade it is up 11 straight points in 3 days.

Am I trying to call a top???NOPE. I'm being selective of what I get involved in. Despite the up day today i'm noticing shooting stars and negatives all over the place for having rallied as much as we did in the past weeks. Goog, Wynn, MA...shooting stars....

Akam is on its 50 day MA. Odd I thought the markets were flying today!!!!

This market is not going to crack until the last bear is broke or retired. Since I capitulated today I know we are near the end.Speaking of things that don't make sense, wtf is up with the defense companies. You would think we are just getting ready to go INTO Iraq. I guess the dems must be good for defense spending!My biggest long position, ADM, has been down lately (even though all the ethanol plays were up today). take a look at the price of agricultural commodities (corn, wheat, soybeans) lately, and explain to me why they won't have the biggest blowout quarter in their history.Don't you love options week?

Isn't this move up just a mirror image of the may to july august. that drop just kept going down day after day with no opportunities to get out on bounces. this market just keeps going with no chance to get out on dips.

i just think to much money got positioned short around the beginning of september looking for a 4 year cycle low or october crash. it has kept a bid under the market.

so here we are back to where we were in may. don't think much has changed economically since then. if anything the data is softer.

I have seen quite a few very bullish calls from several readers on this site over the last 3 or 4 months. Go back and read the archives.It's full of a wide variety of opinions.And of course we all know that's 'what makes a market'.But flexibility is ultimately what keeps you in the game.I like and respect Tim a lot.And I wish I knew or at least felt there was evidence of a huge decline before the end of the year,but for right now, THE FUNDAMENTALS do support what the market has done over the last couple of months.Maybe this thing with no interest rate cuts until '08 will do some damage.But I'll admit,I thought oil going from 30 to 75 would have done the job,but the DJIA rallied 2000 pts while that happened.And by fundamentals I mean 6 yr highs,(some all-time)on all the indexes that count in this business.And lets face facts ,earnings in general have been positive and for the sectors that aren't,that money goes right back into another sector later in the day. So for the last couple months,these levels have to make some kind of sense.

We should have realised that something was up when the market rallying as bad news came out and was reinterpreted as good news....eg lower than expected GDP means the Fed will cut sooner.

Look at KBH. I shorted after the CEO Karatz resigned for fiddling the books and paying some $ back to try and prevent a meeting with bubba in club fed. This sort of news would normally kill a stock.

It dropped a buck or so and then bizarre buying showed up from no-where and up she went...and up and I had to pull out before I was totatly crushed. I am sure there were lots of small shorts biting their lip and buying back.

The housing stocks have broken down and are now bouncing. I have my eye (the one that wasn't poked out by the last round of shorts) on the 200 DMA. That should be a good place to reshort- if they get that high.

a move below 1385 on the SP500 will have broken the trendline from the summer lows. We were at that level just last week. This also happens to be a Fibb line.

As for the fed or some other source pumping liquidity into the markets to soften housing's blow, something of this magnitude would have to drive the dollar lower and gold higher. A lower dollar would make the US vulnerable to foreign take-overs. A weaker dollar would also invite a flight AWAY from US assets, like stocks and bonds.

Do you think the powers that be really want to put the USA on sale?

The only thing that makes sense to me is that this is a major sucker's rally and many piled on (such as hedge funds) 'cause they really believe(d) in a soft-landing scenario.

Let's not forget the INVERTED YIELD CURVE ... it has been that way for most (if not all) of 2006.

H. lovil ... Im assuming since you are on this board that you're a techie.. I was always taught to never mix TA with fundamentals. You shouldnt have shorted KBH because of a CEO resigning.

Same way we shouldnt be trying to figure out, fundamentally speaking, why the market is still going up. Doesnt matter why...trade with the trend and keep your stops tight. When the waterfall happens ( and I do believe it will ) you will get stopped out and be fine.

Personally I feel its so unpredicatable I rarely hold anything overnight.

I stick to the charts and the trend. I dont care about anything else. And it serves me well.

Someone asked if "I" saw a run to 1500 on the S&P without a pullback. Thats a 7% gain from here...well the rally that started from consolidation in the middle of '3 went up 16% before it had a pullback...so 7% without another pullback is historically possible.

We did just have an 8% pullback May-July so if we dont run up ~ 4% ( 1450 area) before we see a pullback I would gather that this rally is really running out of steam and that waterfal could come sooner rather than later.

Tim and others are way more experienced than I, and none of us have a crystal ball..Im just taking educated guesses here...

onewaystox ... you're an ass! Please don't ruin it for the anonymous posters by being a dickhead. Get the bull cock out of your ass and either understand that this blog is for short ideas or go and develop your own blog.I would love to go to your blog and post insulting comments!

Okay ,case in point, I saw ONEWAYSTOX post his very bullish stance on this site 1,2 & 3 months ago.And I'm not saying I just totally did an about face and made tons of money in the last 2 months either .Got a few winners.But if one is willing to be objective,everyone on this site,certainly including me,could have gone into the new year with such a fat wallet we could have taken next year off.One thing I have to say though is,I know of other traders who have been long on every trade and still lost on most of them because of those 50 to 80 pt morning or afternoon sell-offs.It either scared 'em out or they got stopped out.This folks has been an INVESTORS rally. Probably in reality the best kind for the market in general,but bloody hell for us traders.As if you did'nt already know .Goodnight!

This "rally" is 100% based on Fed liquidity being pumped into the market at an astonishing rate. There is no mystery behind it. And it's also no big secret, either.

That being said, there is absolutely NO WAY IN HELL that any single one of you know-it-all-wannabes saw this rally coming starting back in July. I'm sorry, but you could have GUESSED that a rally was coming, but all of the objective evidence would have been against you: historic 4-year cycle coming due, economic downturn, slowing GDP growth, housing bubble crashing, etc. We all know what *SHOULD* have happened, but the markets just didn't cooperate.

You can always look back and say "I told you so" if you were bullish, but without any REAL JUSTIFICATION for your sentiment, then you were just plain guessing, just like we all were.

Using historical, economic, and fundamental FACTS to make sound judgements in making investment/trading decisions is not a "crazy idea." But an outright GUESS that the markets would have started a 15% non-stop, balls-out rally back in July is just what it is... a guess.

If any one of you out there can honestly tell me that you KNEW the Fed would fire up the printing presses and pump ungodly amounts of liquidity into the markets to keep them afloat to prevent a recession, then you're either lying through your teeth or you know Bernanke on an intimate level.

pb: To answer your question about why this isn't showing up on the inflation front: Because PMs (especially gold) are being held down by the big players.

Also, there is no PUBLIC information regarding TRUE inflation, therefore the average Joe investor (and I would imagine a good portion of the over-worked investment houses) are overlooking the true inflation measures. Besides, when you can make 3-4% per day on pumped-up equities, why would you worry about an 8% Y-o-Y rise in inflation? If you're a big player, you don't worry about stuff like that.

However, with gold up 30+% Y-o-Y for the past 3 years, it's gotta tell you something.

Another reason for the disconnect is that the "traditional" measures of inflation, such as oil and gas prices, have come down off of their highs this year, giving the perception that everything is all right. That's the real trick: hide the M3 numbers and drop the price of oil and gasoline. That way, John Q. Public is made to think that inflation is not a problem. And the investment houses (who are on the receiving end of the massive liquidity injections) don't care about REAL inflation, because they're making more money by forcing the markets up and up and up.

To put it another way, the big players only care about where they can make the most money. And right now, it's not by playing the inflation hedge. It's by playing with the "funny money" that they're given by the Fed. Once that runs out, then they'll run for cover. But at this point, there's no end in sight, so equities just keep going up and up and up...

Tony, its great to see you back around here. Re:KRY up big on big volume,might be worth a look.If gold can close above 620 for the rest of the week, we may be on the way to 640 and beyond.Long physical gold,USGL,KRY.former bear turned gold bug. Whats a girl ta do?

pb: Oh, and yes, you might think that the Fed would increase rates to curb inflation. But they'll only do that if THEIR measures of inflation don't agree with THEIR measures of the economy. Which basically means they do whatever they want, whenever they want.

The TRUE inflation readings are only very loosely related to the numbers that they release to the public. It has been estimated that true inflation is around 8 percent, while the numbers that they quote to the public is less than 3 percent. There is a huge disconnect, and now that they're not reporting the M3 figures (conveniently discontinued in February of 2006 after 50 YEARS of tracking), we will never actually know the real inflation figures.

Anyways, the deal with the Fed is that they're all about the hawkish talk regarding inflation, but when it comes to actions, they're very dovish.

Oddly enough, my gut instinct tells me that after this huge rise in the markets, the Fed will decide to RAISE rates in January or February, thus crashing the markets, but ONLY AFTER all the big players liquidate their stocks to the uninformed retail investors over the course of the next few months.

Watch very carefully for the institutional turnover (hidden distribution on heavy volume with no price movement) in the major index stocks in the next few months. The stock market is very much an "us versus them" environment. They like to make you think that if you don't buy at the bottom, you're stupid, and if you buy at the top, you're stupid. But what they fail to tell you is that *THEY* dictate the tops and bottoms. The key is to try to identify exactly WHAT they're doing.

And so far, the bears have severely underestimated Ben Bernanke's ability to turn on the liquidity faucets when things looked rough. I suspect that within the next quarter, the bulls will underestimate his ability to turn them off.

Even though gold hit a recent high of $636, the real pivot point is at $628.50. If gold can close above $628, then it should hit $646 again, possibly on its way to $660.

I'm not even going to start guessing where gold is headed, as it is being terribly manipulated. I initially thought it might be a good long-term hedge, but I'm starting to have my doubts, considering its voltility this year. The big players could force it down to the low to mid $500s without gold going bearish.

I like to watch it, but the recent technical moves have been turning me off to gold as a long term investment. The markets haven't been behaving "normally" in the last 6 months or so, so I'm not really sure where to make the best use of my money. I suspect that gold just isn't it right now.

I'd say from the message you posted,you're definitely NOT the bright one.Read that posting of mine again.It really had little to do with ONEWAYSTOX.Though I suppose oneway could mean up or down.They did'nt name themselves ONEWAYUPANDIMEANONLYUPSTOX.

I for one am one of the bigger BUULS in here, but the idea is to make winning trades and bounce ideas off people in the blog, not to insult or undermine people in here daily for thier views. It is a bear blog after all.

Soooo,, if you have been LONG since July, (which i am sure none of you have) like I was. Go buy yourself a Mangnum of Cristal and get yourself laid.

Maybe you wont have the energy to post stupid comments directed to Tim,

It is nice to see KRY performing. It tends to be erratic. I'm up 20% on that holding. It is very erratic, though. I did buy some ERF on the debacle. It went up 8% before dropping a second time. Cramer talked about these Canadian Trusts just last night. ERF popped to $43 last night. They'll all pop this morning. I'm glad I developed my thesis before he did. I also think some of the drop in ERF was due to ex dividend which their chart reflects. So I hung on and did not get shaken out.

Its a hedge fund world. Only the mad drive for performance could arouse gold from a 20 year slumber or run oil to unimaginable highs. Once the crowd milked all things metal and petro, it was time to move to another asset class. Now its all things equity and no hedgie can be left behind. Technicians and fundamentalists alike are left to wonder how long this collective insanity can persist. This market run is now at the stage where its more an absence of sellers keeping things afloat. Everyone needs to be in. The rush for the exits will be something to behold but until then, the short shredding will continue.

I, for one, don't see any shortterm future in going long the home builders - no matter what Cramer says. Take a look at RUF - seems to be hitting its head on its down-sloping trendline, many of these charts (LEN, HOV, KBH, etc.) are all near or at resistance. We'll see where that rally goes. And as any bear will tell you, patience is a virtue. This rally IS showing signs of age, and lately it seems propped up by fund managers jumping in late, chasing the market - not wanting to be left out.I look at it this way - I can only hope the market gets REALLY overbought - the profits on the short side are going to that much better. What concerns me is that we may only gently drift lower. Best is to zero in on some really steep trendlines and when they are breached - POUNCE!

TonyB --- the mkts in the US are open and hence there is foreign participation. How do you think all this manipulation sits with the foreigners? If they sensed s/thiong amiss they wld dump in a heartbeat .... but this still might happen.

Looks like bonds are peaking so I put on a short position. Sorry Bond John, bonds start dropping, equities will too.

re:gold. Compared to bonds and USD, it's overpriced. Looks like a frenzy based on M&A. My best guess is gold to 570-580, THEN it'll take off again and break to new highs. Too many watching and hoping. I'm short.

re:GOOG. Put on a short order this morning. They're busy throwing money at companies, hoping it'll stick. Note the reversal yesterday on higher than average volume. It could drop a quick 100 pts and still be a LT buy but compared to risk free alternatives, it's at the top of the range. Also note that there have been 3 highs YTD plus this one. Each high volume has progressively declined.

On the other hand, there have been some nice trades when different stocks drop 20% on 10X volume, clears out the sellers and weak longs and opens them for a pop.

bond John ... your insights would be valid if bonds weren't so damn over-valued. You're using a faulty compass to navigate, but it looks like you are not alone, as many have been buying stocks based on this mis-placed math.

I hate to say this but this is the classic 'perfect storm' bull market.Moving up frustratingly slow,but constantly climbing the 'wall of worry' day after day.Two years from now when we all look at the charts of the breakout above 11750,it will look like it should have been simple.But it never is !

day after day after day i question this market, how it can sustain these moves with little or no pullback is beyond anything ill ever understand.

Every bear in here knows when the market was selling off hard in June and July we did get those oversold rallies, how come we are not getting overbought selloffs....seems like the bulls get everything they want. I know good things like this eventually come to an end, but when of course is anyones guess. And to think I was bullish on this market under 11k back in July haha...

tonyb, one thing to note that this liquidity ramp has been driven by the treasury repos, NOT the fed, paulson has taken over the driver's seat from ben and relegated him to the playskool wheel in the back seat. as if you didn't know already, the winner has and will always be the big boys on wall st., mainly gs, ms, mer

Trader2006I wish I could tell you it was, geezzz, Im pummled. I took out a heavy short and in just 2 days Im pounded totally pounded. What the hell to do? I just know if i close them the market will then fall. If I go long the market will fall. If I hold these short positions the market will carry on rising. Whatever I f****** do the market ALWAYS does the opposite. I just dispair. But surely surely this just cant go and on? A glorious soft landing with zero inflation and 1% interest rates has not only been factored in, but way exceeded.......?????? LOL like a madman

If the market goes up alittle more...I'm loading the boat with SPY puts.. You won't get an opportunity like this in your lifetime again. At some point you need to realize that something isn't making sense, and that the risks are not to the upside any longer.. they areto the downside.

Up 7/8 days...hahah this is a bad joke. Let them run it through the roof.....I'm not calling a top but there are an awful lot of weak stocks that need a break. You don't keep sprinting without breathing....

Im in on the hunting trip. Can we do it before the closing bell so I can go home(at least one day) happy. Since when is it illegal for the market to be red at the end of the day. the GOP must had passed that law before they were thrown out....

Trader2006 - and anothing, NEVER feel you are alone. We are all with you and in this those active bears. i lost in excess of $12000 last quarter gambling on the DJA. I want my money back and will fight to get it back. Just dont give up mate. By the way - is that you at the top of this section? You had $27500 in June. If it is Christ man. The only thing I can say is at least your capital hasnt been lost like mine has. I know thats probably no help at all? There isnt anything else I can add at present. Just stay with us

down your not alone....same thing happens with me, i go long the market drops, i go short and im covering like you days later....

I was long QID at 67.000000000000000000000000000

today 91.0000000000000000000000000000000

I sold out of QID for a minor profit, went long again around 70-72 and sold for a minor profit then went long QID and since then have averaged down 3 times losing everytime.....im in a no win situation..

pb i was looking to go long around dow 11600-11700 but that was when the dow was trading at 12,000....

its also one of those things that if the DOW does go to 11900 you think hey now is a great time to go long, you go long and the next thing you know its trading at 11,500.

8 out of 9 days is pretty amazing if you ask me....

i really thought 2 weeks ago when we briefly dipped below 12,000 that the bears were going to win, but it didnt work.

HPQ earnings after the bell nothing too great, stock is unchanged, however sbux is down..........I think i may have to buy some SBUX because it only goes up after it falls like this....35 might sound good...

S&P just cannot close above 1400... though I dont think thats the sign of a top. I think we'll do a little pullback next day or so and then next week we'll close above 1400 and you'll see the next leg of this bull rally.

You guys talk about the pullback this summer as if it was the tipping point to a bear market..look at it..it was a pullback..thats all.

Im also confused how everyone here mixes techincal analysis with fundamental 'whoohaa'. The chart tells you everything you need to know...trying to decipher fundamentals is a recipe for losing money.

The dude who says hes been shorting RIMM since 80 is breaking every rule of trading.. you might as well take your cash to Vegas. Because you are gambling..not trading.

The dude who is talking about all the indicators peged at overbought is forgetting that they can be pegged at overbought for a LOOONG time.

You guys are trying to call a top..which is another rule of trading that you arent supposed to do.

Having said all that crap I agree everything seems overbought and Im ready to put on my bear hat..but ot until I see some REAL confirmation in the charts.

I apologize if my tone seems a little harsh but I dont like to see people lose money when theres so much to be made. Re-read your tech analysis books then jump back in...unless many of you are just enjoying the 'why me' of missing this run up.

Tim..I'll shut up if you want me to ..im just so frustrated by many of these comments.

My first post here, and like many I have been looking for the bulls last gasp as any number of issues (debt, valuations etc...) bring the market back to earth. But perhaps I am looking at this all wrong. After all, the almighty Dollar is fundamentally worth.....nothing. The powers that be can (and have) been printing them non stop for quite some time now, and all the debt markets do is yawn. So perhaps a better question is " how much are these companys worth....in monopoly money?" How many bright orange $500 bills from milton bradley would you trade for a share of GE? Until the debt market calls the central bank's bluff, there really is no reason for the market to fall.

trader2006 and downosedive ... I know the feeling you wanna go long, but just as you do the market tanks. You go short and the market goes up! It's like it has your number and does exactly the opposite of what you do, no matter what you do! I think this is some kinda phenomena that some social scientist shd be studying.

Well folks the time has come to say ENOUGH! As you may remember we called the rally to the DAY and now we are sticking our necks out and predicting a decline starting today.We are doing this with no economic news on tap and no other catalyst that we can think of to set this decline off. Then why oh why are we ruining the fun?

Well It's The Productivity Stupid! In the 1990's big gains in corporate efficiency brought on by high tech spending & global trade was THE key factor in holding down inflation. You don't hear much about worker productivity lately from the Fed whereas Greenspan used to talk about it all the time. Why no mention from Big Ben? Well because the news is not very good.In 2003 we reached a PEAK rate of 4% productivity growth As of the third quarter we were down to 1.9%. This takes a little time to work it's way through the economy but it's the slowest rate in 9 years! The newest reports we have read suggest a rate of 1.3% and that rate WILL be revised even lower early next year when the Labor Dept. incorporates recent hours worked info from 2005 and 2006 (a lot of overtime- not new hires). Productivity slow down means the economy has less room to grow without generating inflation ,this is showing up in the labor market that continues to TIGHTEN even as economic growth SLOWS. The result labor costs are spiking. And just at a time when most companies productivity gains are to weak to offset a pay raise to the workforce. October hourly pay was up a whopping 4% from the year before.

The Fed then is in a bind. As economic activity reaccelerates as we think it will after the midyear cycle slowdown the labor markets will tighten further-- Quite simply running at absolute employment is BAD for inflation. So whereas commodity-based inflation and oil has retreated and that has caused inflation to appear to have peaked - the end result may be quite a bit more inflation than the Fed can be comfortable with. Big Ben will have to continue his rate raising cycle and that will put us in a risk of recession in mid to late 2007.

Why correction now then? Well things don't go straight up. The VIX is popping under 11 complacency is everywhere-- oil is hovering at $60 not $50 despite the warm weather on the East coast. It's really just a GUT feeling one gets from studying the markets for 20 years but the Bears are getting rolled day after day, liquidity is so low ONE $500 million dollar futures buy the other day set off a stampede on the upside in the S&P 500. I have never seen that before. The buybacks by corporations have helped this rally and corporate earnings so much! However, the recent round of mega IPO's has us worried that some of the excess liquidity is now being mopped up.

The Fed is expecting an economic slowdown sufficient enough to generate enough slack in the labor market to allow price pressure to ease.Stoned Investing is not so sure. And even if we do slow down inventories are so high right now , 7.5% higher than last year-- that won't be good either.

So the call is for two weeks of pain ~ maybe 5%....but of course a lot more in the one's that have gone up the most.

Tim Knight founded Prophet.net, considered by Forbes and Barrons to be the #1 technical analysis site (sold in early 2005 to INVESTools, where he is the SVP of Technology now). Tim has been trading actively since 1987 and focuses mostly on option positions. He is a dyed-in-the-wool technician, leaning heavily on marked-up charts for his analysis. The contents of this blog are NOT to be considered investment advice, and you should know Tim may or may not have positions in the securities mentioned here.